CICC: Lowering the target price of Era Electric (03898) by 20% to HK$35 to maintain the “outperforming industry” rating

The Zhitong Finance App learned that CICC released a research report stating that it maintained the “outperforming industry” rating of Times Electric (03898) and lowered the target price by 20% to HK$35, corresponding to the 2026 and 2027 price-earnings ratios of 9.1 times and 8.1 times, respectively, with a potential increase of 36%. The bank maintained the company's 2026 and 2027 profit forecasts of $4.411 billion and $4.817 billion unchanged. The company achieved revenue of 20.818 billion yuan in the first three quarters of 2026, up 10.56% year on year, and net profit to mother of 2,805 billion yuan, up 3.11% year on year. The results are in line with the forecast.

CICC's main views are as follows:

Results for the first three quarters of 2026 are in line with expectations

The company announced results for the first three quarters of 2026, achieving revenue of 20.818 billion yuan, a year-on-year increase of 10.56%, and net profit to mother of 2,805 billion yuan, an increase of 3.11% over the previous year. Looking at a single quarter, the third quarter of 2026 achieved revenue of 7.747 billion yuan, a year-on-year increase of 17.10%, and net profit to mother of 1,093 billion yuan, an increase of 4.18% over the previous year. The results are in line with this forecast.

Rail transit and emerging equipment have achieved steady growth

In terms of traditional business, the rail transit sector's revenue for the first three quarters of 2026 was 11.479 billion yuan, an increase of 11.31% over the previous year. The bank believes that it has mainly benefited from the successive delivery of new tender orders and increased contributions to operation and maintenance business. Among them, rail transit electrical equipment, rail construction machinery, communication signal systems and other rail transit equipment sectors achieved revenue of 9.320 billion yuan, 1,016 billion yuan, 837 million yuan and 297 million yuan respectively, up 15.43%, 13.10%, 10.44% and 48.25% year-on-year respectively.

In terms of emerging business, the revenue of the new equipment sector in the first three quarters of 2026 was 9.244 billion yuan, an increase of 9.70% over the previous year. Among them, the semiconductor, automotive, marine, new energy and industrial sectors achieved revenue of 4.469 billion yuan, 2,605 billion yuan, 840 million yuan, 795 million yuan and 535 million yuan respectively, up 16.38%, 39.49%, 26.88%, a year-on-year increase of 49.98% and an increase of 14.28%, respectively. The bank believes that looking at the whole year, all sectors of the emerging business are expected to maintain a positive trend.

Increased cost rates affect profit levels

In the first three quarters of 2026, the company's gross margin was 31.8%, up 0.04 percentage points from the previous year, maintaining good profitability against the backdrop of rising raw material prices. The sales, management, R&D and financial expense ratios were 2.1%, 3.8%, 10.2% and -0.4%, respectively, up 0.20, 0.01, 0.21 and 0.88 percentage points from the previous year; the net interest rate was 13.5%, down 0.97 percentage points from the previous year.

New tendering and maintenance services are expected to continue to support the performance of the rail transit sector

According to China Railway Group, the country's railway fixed asset investment in the first three quarters of 2026 was 601.2 billion yuan, an increase of 1.3% over the previous year. Up to now, a total of 268 EMUs with a speed of 350 kilometers per hour were tendered in 2026, which is close to the total number of tenders for the whole of 2025; a total of 538 locomotives have been tendered, which has exceeded the total number of tenders for the whole year of 2025. The bank believes that with the increase in the number of EMUs and locomotives in the country, businesses such as maintenance and intelligent transformation are also expected to form a stable revenue base.

Risk Alerts

The continuity of rail transit tenders falls short of expectations; IGBT volume falls short of expectations; exchange rate risk.